FINRA Fines Aegis Capital $2.8M for Failure to Supervise Potentially Excessive Trading
Brokerage firms that are members of the Financial Industry Regulatory Authority (FINRA) need to have supervisory systems in place that are reasonable designed to meet compliance standards. They are also obligated to investigate and act when alerted by that supervisory system that compliance issues have been identified.
In a November 8, 2021, FINRA Letter of Acceptance, Waiver and Consent (AWC), FINRA member firm Aegis Capital Corporation accepted FINRA sanctions, without admitting or denying the findings, for failure to supervise potentially excessive trading.
As part of the AWC, Aegis Capital agreed to a FINRA censure and a fine of $2.8M, which included $1,050,000 and restitution of $1,692,256 to nearly 70 customers whose accounts were harmed by the lack of supervisory oversight and action by Aegis Capital.
The company also agreed to implement recommendations by an independent consultant on improving its supervisory systems and written supervisory procedures (WSPs) to achieve compliance with laws, regulations and NASD and FINRA rules addressed in the AWC. Aegis is headquartered in New York and has 23 branch offices nationwide with over 300 registered representatives.
FINRA alleged that from July 2014 through December 2018, Aegis “failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with the suitability requirements of FINRA Rule 2111 as it pertains to excessive trading.”1
The questionable sales to retail customers were leveraged, inverse, and inverse-leveraged Exchange-Traded Funds (non-traditional ETFs). Specifically FINRA identified excessive and unsuitable trading in 31 customers’ accounts managed by eight Aegis representatives. This excessive and unsuitable trading caused these customers to incur more than $2.9 million in trading costs.
The supervisors of six of the eight Aegis representatives, Joseph Giordano and Roberto Birardi, failed to respond to 700 of the 900 exceptions reports that Aegis received which identified unsuitable trading. There were also 50 complaints from customers alleging excessive, unsuitable or unauthorized trading in their accounts.
Even Aegis compliance personnel were ignored by the company when they identified deficiencies with the firm’s systems and procedures used to monitor for potentially excessive tradiing.2 In a separate FINRA action, Giordano received a six-month supervisory suspension and Birardi a three-month. The two supervisors also were fined $10,000 and $5,000 respectively.
“Recognizing and responding to red flags is the hallmark of proper supervision, and a critical component in preventing excessive and unsuitable trading in customer accounts,” said Jessica Hopper, Executive Vice President and head of FINRA’s Department of Enforcement.3
The Securities and Exchange Commission (SEC) and FINRA (FINRA.org) have established rules and regulations which must be followed by your investment advisor or stockbroker. If you have questions regarding the management of your investment accounts, call our Detroit area Securities Law Firm and speak to a securities attorney.
We have more than 20 years of experience and commitment to investor’s rights in Michigan and beyond and recovering their losses due to broker negligence and investor account mismanagement.
___________________________
1 FINRA Letter of Acceptance, Waiver, and Consent No. 2016051704305
Link: https://www.finra.org/sites/default/files/2021-11/Aegis-Capital-AWC-110921.pdf
2,3 FINRA Orders Aegis Capital Corp. to Pay $1.7 Million in Restitution to Customers Whose Accounts Were Excessively and Unsuitably Traded, 11/9/2021
Link: https://www.finra.org/media-center/newsreleases/2021/finra-orders-aegis-capital-corp-pay-1-point-7-million-restitution